JPMorgan downgrades Convatec after profit warning

Convatec issued its second profit warning in 12 months on Monday, revising down full-year guidance mostly due to a change in the inventory policy of a key customer of its Infusion Devices business, but also because of weakness in the other divisions, notably Wound Care.

"A second profit warning in 12 months, uncertainty around 2019 guidance, as well as further management change is likely to further dent investor sentiment, with limited catalysts in our view in the near to medium term," said JPM.

It said that while the equity story is clear - defensive growth and improving margins - what has lacked in the two years since IPO has been consistent execution.

Convatec cuts its overall 2018 organic growth guidance to between 0% and 1% from a previous range of between 2.5% and 3%. Management quantified the impact to organic growth as 130 basis points the Infusion Devices arm, 40-45bps from Wound Care and the balance of the cut from the other two divisions.

"While some investors may take the view that the ID issue was out of the hands of the company, of greater concern, in our view, is the poor forecasting and execution within the company across all franchises.

"Management commentary through summer (and even on pre-close calls) had been positive, however sales numbers across the franchises disappointed (despite soft comps, notably in Ostomy and Wound Care). With management upheaval and a business seemingly without oversight on sales and growth, we can understand the share price reaction yesterday."

At 1010 BST, the shares were up 2.9% to 154.40p.